When you apply for a personal loan, the lender will request several documents to verify your personal and financial information before making a decision. While some lenders have their own application and eligibility requirements, most lenders will ask for similar documents.
Knowing what documents you need and having them ready before you apply can increase your chances of being approved and help you receive your funds faster.
What do I need to apply for a personal loan?
When you begin the initial application process, the lender will request documents to verify all the information you have provided. This will help them determine the interest rate of the personal loan you will be offered and your ability to repay. This usually includes proof of personal information to verify your identity and financial information. Usually, most of the documents can be submitted electronically through a portal on the lender’s website.
1. Application Form
All lenders require you to fill out an application to get approved for a loan. If you borrow from an online lender, the process is done entirely online. If you apply for a personal loan from a local bank or credit union, you may be able to meet in person with a bank representative to fill out the application.
Applications may vary slightly depending on the lender, but typically they will ask for information such as:
- Your full name.
- contact address.
- Address history.
- date of birth.
- social security number.
You’ll need to choose a loan amount, answer questions about the purpose of the loan, and provide financial details about your monthly income, bills, and debt obligations.
2. Identification documents
To approve your loan, lenders must be able to verify your identity. Typically, they’ll need two forms of ID, and acceptable documents include:
- Birth certificate.
- Certificate of citizenship.
- driver’s license.
- Military ID.
- passport.
- Social Security card.
- State issued identification.
Lenders will need to be able to read your ID, so take a clear photo with your smartphone or use a scanner to avoid delays.
3. Employer and income verification
Unsecured personal loans are primarily based on your income. Lenders don’t require you to provide collateral to back the loan, so you’ll need to prove you have a verifiable, stable income to be approved.
If you are traditionally employed, you can prove your income with a few documents:
- Pay slip.
- Tax return.
- W-2 and 1099.
- Bank statements.
- Employer contact information.
If you are self-employed, you may need some or all of the following documents:
- Bank statements.
- 1099s for the past two years.
- Tax returns for the past two years.
If you work for a regular employer, you should be able to access your payslips and tax forms through your payroll provider’s online database. You can also contact your HR or payroll department. If you’re self-employed, you may need to work with a CPA or other tax professional, who may be able to help provide you with the tax forms you need.
4. Proof of Address
You’ll also need documents to prove your current address and how long you’ve lived there. If you move frequently or have just moved to a new area, you may not qualify. Some lenders may require specific documents, but you can usually use any of the following:
- Utility bill.
- Lease or rental agreement.
- Mortgage statement.
- Proof of home and/or car insurance.
- Voter registration card.
- Property tax receipt.
- Bank or credit card statement.
If you need to verify your change of address, the United States Postal Service provides resources to help you verify your change of address. The quickest and easiest way is to do it online, but you can also go to your local post office and fill out a form in person.
Other information used by lenders to approve your loan
When you apply, lenders consider several factors when approving your loan and determining the interest rate they’ll offer you.
- Credit score.
- Lending purposes.
- Monthly expenses.
- Debt-to-income ratio.
What if I don’t have the necessary documents?
You’re not completely out of luck: Depending on what’s missing, lenders may offer alternative methods of verification.
For example, if you don’t have your pay stubs on hand, they may contact your employer directly to verify your income information or ask for proof of electronic deposits in your bank statements. Some lenders allow you to sync your bank information during your application to verify your income information electronically, without you having to submit any additional documentation.
That said, in some cases, not having all the necessary documents can result in your loan being denied, so if you are missing any documents, notify your lender right away to see if there is a way to avoid the issue.
What happens if I don’t get approved for the loan?
If your personal loan application has been rejected, there are some steps you can take to improve your chances of being approved on your next application.
Get a co-signer
A co-signer, usually a family member or close friend, also assumes legal responsibility for the loan by signing on to the application. Adding a qualified co-signer can increase your chances of approval or a higher loan amount.
Remember, if you miss a payment on the loan or default, your co-signer’s credit will be affected.
Opt for a secured personal loan
A secured personal loan is backed by collateral such as a boat, car, home, RV, etc. You will need to provide proof of ownership and the lender will need to determine the value of the asset you are lending against.
Applying for a secured personal loan can increase your chances of being approved as it reduces the lender’s risk by allowing the lender to seize your assets if you cannot repay the loan. You may also get a lower interest rate, which means lower payments and a higher chance of being able to borrow a higher loan amount.
Improve your credit score
If you don’t currently qualify for a personal loan and don’t need the money urgently, consider improving your credit score. Paying off your credit card balances is one of the best ways to quickly improve your credit score. This will lower your credit utilization ratio, which is the main factor in determining how high your credit score is.
An improved score increases your chances of being approved and also increases your chances of getting a good credit loan interest rate, potentially saving you hundreds or even thousands of dollars in interest payments.
Consider a credit card
Credit cards are designed for small, everyday expenses, so they may not be the best option if you need to cover a large expense. However, for general projects that cost less than $1,000 and can be paid back quickly, a credit card may be a better choice. Applications require similar documentation and information, and it may be easier to find a credit card that meets your needs.
Conclusion
Gathering the required information and documents before applying for a personal loan can save you time and prevent delays in your funding. Make sure all your documents are legible and submit them as soon as possible to speed up the process.
Not all lenders have the same requirements, so be sure to check the general document standards before you apply. Being prepared can increase your chances of being approved and get your funds faster.
